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Employers: Are you in the right kind of relationship?

Mar 12, 2014

Are the people working for you employees, self-employed persons or workers? It is possible to contract with someone on the assumption they are self-employed, but in reality that person is treated and recognised as an employee or ‘worker’ under the law. An employee is ‘an individual who has entered into or works under….a contract of employment’. It is therefore usually quite clear when an individual is an employee, but this is not always the case. Employees benefit from the greatest level of protection under employment law, but certain employment rights also apply to ‘workers’.

It is therefore vital that companies are aware of the distinction between different working relationships, to prevent breaching individuals’ employment rights.

Employed or self-employed?

To determine whether an individual is employed or selfemployed, the following criteria should be applied:

- Mutuality of obligation: In an employment relationship, both parties are under a mutual obligation towards each other; the employer must provide work and pay the employee, and the employee is under an obligation to accept any work offered

- Sufficient control: Employers will have a sufficient degree of control over employees, for example in what they do, how they do it and when they do it

- Personal performance: Employees must perform their contracts personally i.e. they must turn up to work themselves every day. Self-employed persons’ work can be carried out by a suitably qualified replacement

- Not in business for own account? All the circumstances of the relationship should be taken into consideration. For example, employees will generally be working under a contract of employment, they will receive holiday pay, be subject to company disciplinary and grievance procedures and be paid through PAYE

There are, of course, significant tax implications related to this distinction; however, companies should also be aware of the potential liability for employment claims arising out of an individual’s employment status. For example, employees have protection from unfair dismissal, rights to redundancy pay, sick pay and maternity pay. If it becomes apparent that an individual who has been classed as ‘self-employed’ is actually an employee, an employer could face a variety of claims arising out of that person’s employment.

Workers
All employees are also workers. However, the term ‘worker’ will also include an individual who is:
- Working under a contract (other than a contract of employment)
- Offering their personal service to another party to the contract who is not a client or customer
- Receiving remuneration for this work

This could include for example, self-employed contractors or freelancers, subcontractors and home and casual workers. Identifying individuals who may fall within this category is imperative, as ‘workers’ have protection from discrimination, the right to holiday pay, break and rest periods, equal pay, and protection under national minimum wage etc.

What next?
It is advisable to assess the status of all individuals working for your company so that you are aware of their rights, and to ensure they are not breached. You should also review each individual’s contract and determine whether the document reflects the true nature of that relationship. If a dispute arises, a tribunal will investigate the relationship as a whole, rather than simply accepting how the individual has been labelled in a contract. If you do not have any written contracts, it is advisable to put these in place.

Nockolds Solicitors Limited is authorised and regulated by the Solicitors Regulation Authority (”SRA”) (ID numbers 567738 & 605527). A copy of the SRA’s rules can be found at www.sra.org.uk/solicitors/handbook/code.